Hidden threat to South Africa’s economy

China’s consumer confidence has plunged to levels last seen during the COVID-19 pandemic when the country’s economy came to a standstill. 

While this is far from the front of mind for many South Africans, it has a significant impact on the local economy, equities, and the rand’s value. 

This is feedback from Allan Gray’s chief investment officer, Duncan Artus, who outlined some of the major driver forces behind movements in local equity markets. 

Speaking at the firm’s The Times investment update, Artus explained that the volatility of recent months is primarily from decades-long problems coming to the fore. 

In particular, the issue of the United States’ growing trade deficit with China and other significant manufacturing hubs has become a bone of contention. 

“It is something that has been building up over many, many years, this huge imbalance between the United States and China,” Artus said. 

China roughly makes a third of all manufactured goods in the world and only consumes 12% of these goods, whereas the United States only produces 15% of goods and consumes nearly a third. 

“The Chinese economy simply cannot consume the difference between how much it manufactures and how much it consumes, so it has flooded the world with cheap goods.” 

“It does not matter who the US President is. At some stage, someone had to deal with this, and they are currently trying to.” 

Artus explained that the challenge for South Africa is that it is a very small, open economy, and so, it will be buffeted around by larger economies. 

This buffeting is evident in the wild swings in the rand’s value so far in 2025, making it one of the most volatile years for the currency on record. 

The country’s benchmark index, the JSE All Share, has also seen immense swings, with it dropping from 91,000 points to around 78,000 and back up to 91,000 in just two weeks. 

This volatility is shown in the graphs below, which show the JSE All Share’s performance year-to-date and the fluctuations in South Africa’s bond market. 

Chinese economic headwinds

The tension between China and the United States is likely to have a more significant impact on the South African economy than deteriorating relations between Washington and Pretoria. 

With the United States being the financial centre of the world and China being South Africa’s largest trading partner, any economic slowdown in these countries will be felt locally. 

Artus explained that the performance of the Chinese economy is important to the JSE in particular, given how it is currently weighted towards commodities companies. 

The South African rand is also largely traded based on the price of global commodities, as the country’s exports are predominantly raw materials. 

In this regard, China is probably the most important country for South Africa on the global stage, as its demand for local commodities can greatly influence the earnings of local companies and the value of the rand. 

“Why is China important? Well, who do all our mining companies sell to? And our agricultural exporters? Well, it is obvious that most commodity demand comes from China,” Artus said. 

In the case of some companies on the JSE, such as Naspers and Prosus, all of their value is based on Tencent, a Chinese tech giant. 

With regard to another large company on the JSE, Richemont, around 40% of luxury goods are sold in China, making it a vital market. 

“When you look at what is selling in China and what the Chinese economy demands, it is very important to many global companies and many companies on the JSE,” Artus said. 

“The long-term growth is always supposed to come from China, and that has disappointed over the last while.” 

Artus pointed to consumer confidence in China as a sign of the country’s economy slowing down and its appetite for commodities beginning to stagnate. 

Chinese consumer confidence has dropped to levels last seen during the COVID-19 pandemic, when the country was effectively shut down. 

This decline and the subsequent impact on Chinese economic growth and demand for commodities will have consequences for South Africa. 

The sharp decline in consumer confidence in China can be seen in the graph below.